JOHNSON & JOHNSON Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Innovative Medicine: Demonstrated strong growth despite STELARA biosimilar headwinds. DARZALEX exceeded $3 billion for the third consecutive quarter. Riboflavin plus LASCRUZ achieved milestones in lung cancer, and Tremfya showed significant growth in inflammatory bowel disease.
• MedTech: Delivered 4.1% operational sales growth, with strong performance in acquired cardiovascular businesses and surgical sectors. Abiomed and Shockwave met deal model expectations and had portfolio milestones.
• Acquisitions and Investments: Completed acquisition of IntraCellular Therapies, and announced a $55 billion investment plan in the US over 4 years for manufacturing, R&D, and technology.
• Pipeline Progress: Caplyta expected to be approved for major depressive disorder adjunctive treatment, riboflavin plus LASCRUZ advanced in lung cancer, Tremfya expanded in IBD, and Ichotrochindra showed positive results in psoriasis and ulcerative colitis.

Segment Performance

• Innovative Medicine: Worldwide sales were $13.9 billion, up 4.2% despite an approx. 810 basis point headwind from STELARA. Oncology saw SARS grow 22.5%, Pervixi at $369 million with over 100% growth, TechValley 15%, Talvei 50.2%, Erlida 14.6%, and Ribrovant plus LastClues at $141 million with over 100% growth. In immunology, Tremfya grew 20.1% despite Part D impact, while STELARA declined 32.3%. Neuroscience saw 42.9% growth.
• MedTech: Worldwide sales totaled $8 billion, up 4.1%. Cardiovascular businesses (Abiomed +14%, Shockwave with $258 million from acquisition) contributed, along with strong performance in vision (contact lenses +2.7%, surgical vision +6.2%) and surgery (+1.1%, impacted by divestitures). Orthopedics declined 3.1% due to one-time events.

Guidance

• Operational sales growth for 2025 is projected in the range of 3.3% to 4.3% (midpoint 3.8%). Reported sales growth is expected to be between 2.6% to 3.6% (midpoint 3.1%).
• Operating margin is expected to improve by 300 basis points compared to 2024.
• Net interest expense is projected to be between $100 million and $200 million.
• Adjusted earnings per share guidance is $10.50 to $10.70, with a midpoint growth of 6.2%.

Risks

• Tariffs: MedTech is impacted by tariffs, including China tariffs and USMCA-related tariffs, amounting to ~$400 million in 2025.
• Biosimilar Competition: STELARA biosimilar competition poses a significant headwind.
• One-Time Events: Orthopedics and Surgery have been affected by one-time events such as revenue recognition timing changes and divestitures.

Question and Answer

Q: Larry Biegelsen from Wells Fargo asked about annualized tariffs and mitigation.

A: Joe Wolk responded that $400 million in tariffs are primarily MedTech-related, including China and USMCA tariffs, and mitigation strategies include supply chain management and tax policy considerations.

Q: Chris Schott from JPMorgan inquired about gross margin drivers.

A: Joe Wolk explained that gross margins were impacted by STELARA, Part D, and transactional currency, with expectations for improvement moving forward.

Q: Asad Hader from Goldman Sachs asked about STELARA erosion and Tremfya growth.

A: Jennifer Taubert and John Reed responded that STELARA erosion is in line with expectations, and Tremfya is growing due to IBD approvals and positive data in IBD and psoriatic arthritis.

Q: Joanne Wuensch from Citibank asked about orthopedic sales recovery.

A: Joaquin Duato stated that orthopedics was impacted by one-time events, but innovation and new products are expected to drive recovery in the second half of the year.

Q: Matt Miksic from Barclays asked about Tremfya and Ichotrochindra portfolio.

A: Jennifer Taubert and John Reed discussed Tremfya's growth in IBD and Ichotrochindra's potential in psoriasis and ulcerative colitis, highlighting their respective opportunities.